You’re going to think I’m really dumb when you read this. You might even want to take away my PF blogger card. My mistake was a doozy. I’ll just say that I made it several years ago when I was just figuring out my finances and I was a lot less involved than I am now. And Kyle wasn’t around to catch the mistake.

Summer 2007. I had just graduated from college and started my first full-time job. I read Get a Financial Life by Beth Kobliner and some other personal finance books and decided that I need to start a Roth IRA and contribute $200/month (10% of my income) to it. Because I had no money to invest up front, I had to find a company that would let me open an account with no minimum balance and a low monthly contribution. I settled on Fidelity and opened my account. (Note: I do not blame Fidelity at all for what happened. This was my own error entirely.)

I set up an auto-withdrawal for my contributions and kind of stopped thinking about it. Every few months I would grab the month-end balances from my account. During the next year I was busy applying to grad school, converting to Christianity, working on my relationship with Kyle, moving out of my parents’ house… I thought I had the retirement stuff on set-and-forget.

Fast-forward to my first semester in grad school in the fall of 2008. I had been hearing a lot about the stock market and economy tanking and yet my little Excel spreadsheet showed that my IRA account balance had stayed on a linear increase, just barely ahead of what I had invested. I wondered on my personal blog why I hadn’t lost money with everyone else.

Anyone catch my mistake? Anyone? I HAD “INVESTED” MY IRA IN CASH. The only thing I’ll say to my credit in this whole situation was that I did figure out myself what I had done – no one pointed it out to me.

Because I discovered this mistake over a year after I made it, I really can’t say what I was thinking when I set up the account. Apparently I didn’t realize that I hadn’t actually indicated a mutual fund to buy shares of. Because I was unfamiliar with the fluctuations of the market and I was only looking at my balances every few months (upon PF book advice) it took me quite a while to realize something was wrong. If the economic downturn hadn’t been so extreme and penetrated my grad school bubble, who knows how long this could have gone on for.

I finally corrected my mistake in January 2009. You can see in my chart above that I had just crossed a $3000 balance, which meant that I had enough money to meet the Vanguard IRA minimums. I was so embarrassed by my lack of knowledge/common sense/observation skills at Fidelity that I wanted to get away from the company entirely! In January 2009 I put my $3000 in a Roth IRA at Vanguard that invested in the 2050 Target Date Retirement Fund and set up my auto-withdrawals to go there. That’s where my IRA has been ever since.

Why am I glad I made this heinous error of keeping my IRA in cash for over a year? Because of the year that it happened. When I finally got into the market it was very near its absolute trough for this period. I lost money in my first two months with Vanguard and have had mostly gaining-months since then (except last summer, of course!). My quick estimate how much money I didn’t lose by staying out during September 2007 – December 2008 is in the neighborhood of a quarter of my the ending balance.

Moral of the story: Pay attention to what funds you’re in and (non-obsessively) keep an eye on the balances in comparison with how the market generally is doing, assuming you’re largely in stocks. If you wonder about anything, investigate!

Have you made any really huge financial errors when you probably should have know better? Have you found any silver linings?

Really, a lot of people do this? Really??
That’s true, this was a mistake, not an investing philosophy. I cringe when I hear about people cashing out because of the downturn – just in time to miss the upturn.
Well, 40 years until we’ll access this money. I rather hope I won’t be working full-time that entire time. We’ll see.

Thanks for sharing that Emily, that’s a real good story. But stop being so humble, you knew the market was about to crash in 2008 and recover in 2009 so that’s the real reason you put your money in cash, didn’t you? 😉

Emily – I wish we had made the same mistake! When we graduated in 2007, we did the same thing – maxed out 2 Roth IRAs in aggressive target date funds (Vanguard) and we all know how that worked out for us! At the time, I was so proud of our financial independence and initiative! Good thing our retirement dates are WAY off!

I still think you should be proud of that step even though the timing was poor (but out of your control). Did you max out in 2007 or DCA your way in through 2007 and 2008? Definitely DCAing on the way down lessens the pain.

That’s not bad since you didn’t really lose any money! I’m just starting to contribute to my Roth IRA and I still am not really sure what all this means in terms of investing. I need like a roth-ira-for-dummies book.

Hahahaha… that “mistake” turned out to be a good one for you! To be honest, I purposely use an approach like that with my IRA. My contributions go to a cash account within the IRA and then once a year or so I take the lump fund and allocate it to some investment based on my financial adviser’s advice.

Our biggest mistake was talking ourselves into getting the 12 months same as cash for our kitchen remodel. Why did we think we’d have MORE money after having a baby? We were stupid and it ended up costing us about $3500 in fees, plus we’re still in debt…so who knows how much it’s actually costing us.

Sounds like it was probably a “lucky” mistake. I’d guess it’s a mistake that happens far more then people admit to, so don’t feel silly. At least you caught the mistake and fixed it. And you were just trying to make sound financial decisions for your future, I bet a lot of people retiring in 2050 haven’t even started saving yet!

At least you corrected it in time for the market gains. I moved my account to cash when things started to fall, but then didn’t put it back in until after 2009, when things had started to climb. That was my mistake.

Yeah, that’s why I don’t bother trying to time the market. I think I read somewhere that, in most years, if you miss the top 10 single gaining days, you’ve missed out on nearly all of the year’s gains. Would you take your money out again?

Best Mistake Ever!!! I have made many mistakes with my investments. My most common mistake is letting my emotions take over when trading. Thats how we learn. I wish my mistake helped save me like yours did :-/Paul @ Make Money Make Cents recently posted..I Just Won The Foreign Lottery!

[…] with $0 at the end of grad school I’ll be happy for the lessons we’re learning. For instance, I made an enormous mistake with my retirement accounts right when I started out, and you can bet your britches I’ll never be […]

[…] You don’t have to make the absolute best decision about which institution to invest through or which fund to choose from the get-go, so please don’t let paralysis of analysis (if that affects you – it does us!) keep you from opening an IRA and starting to save into it. Starting is more important than being perfect from the beginning! […]